Budget Management: Achieve Your Business Goals Part One

1. BUDGET MANAGEMENT Achieve Your Business Goals Part One Budget Managment: Achieve Your Business Goals (Part One) 1

2. INTRODUCTION Over the last several years, finance executives place high value in budget management. Companies strive to improve their budgeting practices to gain the full benefit of their efforts. Many finance executives say that the most important factor to improve is the ability to analyze information (variance analysis). There is an increasing demand for timely and reliable analytics for volatility in three categories - input, demand, and labor. These include volatility in input prices and availability since market condition is inherently erratic and highly competitive. Others say that the lack of accountability for the budget’s relevance and usefulness to the managers tend to interfere with the company’s ability to obtain the full benefit of their budgeting efforts. Some say that suboptimal budgeting is time-consuming, and manual processing is prone to errors - especially in gathering, submitting, and reconciling data for budgeting. With these in mind, companies rely on technology and finance applications to improve the effectiveness of their planning, budgeting, and forecasting activities. This eBook is the first of the series for “Budget Management: Achieve Your Business Goals”. Each eBook contains various tips and articles that will help you achieve your business goals through budgeting. 2 Budget Managment: Achieve Your Business Goals (Part One)

3. Budget Managment: Achieve Your Business Goals (Part One) 3

4. BUDGETS AND PERFORMANCE “A BUDGET is telling the money WHERE TO GO instead of wondering WHERE IT WENT.” Dave Ramsey 4 Budget Managment: Achieve Your Business Goals (Part One)

5. There are many views to budgeting. Some may feel it’s a mundane accounting task that’s extensive and repetitive. It is a task that requires suspicion, some level of stubbornness and even bravado. Others view it as an exciting challenge to conquer. Regardless, majority still view budgeting season as the nastiest season more than winter. Nobody can escape the fact that it is an extremely vital task for any business. However, most companies use the budget as a benchmark against measurement of performance to determine bonuses. Thus, managers prefer to negotiate attainable budget - since a lower profit budget is easier to achieve; thus, bonuses become higher. In a way, companies are encouraging managers to lower their budget. It is hard to excel in business with a lower budget when one is aiming to compete with others at a standard as low as possible. Both parties, the managers and the bosses, attempt to negotiate on a budget that they both accept. Budget Managment: Achieve Your Business Goals (Part One) 5

6. With careful analysis over time, there is no correlation at all between pay and true performance since the ease and difficulty of budgets ends up being more important than results. In many companies, as long as target budgets can be negotiated - tying bonuses to budgets reduces the importance on improving performance. When the budget bar is decided by the boss, managers don’t take ownership of the budget and may say “I told you that budget was unrealistic.” - this is a very common problem for most companies. So what can be done? Should the business start by setting targets as the year starts to know what is reasonable? If companies focus on measuring performance against the prior year then the budget process is the true planning process. It can be that avenue where both managers and bosses share insights and ideas to improve performance. When performance improves, both the managers and bosses win. 6 Budget Managment: Achieve Your Business Goals (Part One)

7. Many companies today value continuous improvement but do not how to make it work. More companies face commodity volatility making it hard to let go of budget-based targets instead of continuous improvement. To make a continuous improvement focus succeed, the first step is to take a complete measure of performance. This takes into account revenue growth, asset efficiency, and margin improvement. The second step is to create an incentive plan that is not too sensitive to the volatility of the business. It is suggested that the more volatile a business is - the less sensitive bonuses should be swinging above or below the target. Companies should let go of budget-based targets and instead look towards continuous improvement. These are not easy tasks but embracing such ideas with processing budgets and management culture can be very rewarding with more trust, transparency, cooperation, accountability, and results. Budget Managment: Achieve Your Business Goals (Part One) 7

8. IMPROVING ACCURACY THROUGH CONTINUOUS BUDGETING “It is quite obvious that INCREMENTAL CHANGE is NOT going to take us anywhere. We have to think in terms of a QUANTUM JUMP.” - Arun Jaitley 8 Budget Managment: Achieve Your Business Goals (Part One)

9. The dread and hassle of “annual budgeting” starts with simple spreadsheets and ends months later with someone about to jump off the bridge. This is a long, inefficient, and tedious process focused on versions and versions of spreadsheets. Usually, the finance manager sends in an Excel document to the sales manager. The sales manager then “estimates” the budget needed in the future who then passes it to the next person - continuing the repetition among dozens of people until finally, months later - the final spreadsheet is ready for the approval of the executives. Sounds familiar? Budget Managment: Achieve Your Business Goals (Part One) 9

10. Corporations nowadays are trying to keep up with competition. Real time decision making and pivoting goals are essential to business decisions. A slow, months-long budgeting process passed on from one person to the other just doesn’t work these days. Making the transition to continuous budgeting can improve this process. Corporate budgets are planned on a monthly or quarterly basis - rather than annually. With continuous budgeting, countless hours are saved and the accuracy is further improved. There is no ‘settled’ budget with this method since all managers from finance, product, marketing, and sales can collaborate in a month to month basis to determine upcoming budgets. Is it now time to rethink the annual budget? ERP Systems and the proper budgeting and reporting tool can make this long tedious process into a shorter and easier budgeting cycle. Read more on Part Two of “Budget Managment: Achieve Your Business Goals”. 10 Budget Managment: Achieve Your Business Goals (Part One)

11. About Performance Canvas by DSPanel With Performance Canvas we deliver Financial Reporting, Planning, Budgeting, Performance Management and Consolidation in a way that will put your business into overdrive. Based on the ease-of-use of Microsoft Excel and the full power of Microsoft SQL Server we deliver Finance and Performance Management complementing your selected combination of ERP and Line-of-Business systems. Your Finance & Management teams will increase agility, productivity and efficiency within minutes using pcFinancials, pcMobile and pcLegal products powered by DSPanel. The experts behind all Performance Canvas products are the very same experts who designed Hyperion Enterprise, IBM Cognos and Consolidator (frango and IBM), SAP BPC, and Clarity System. Performance Canvas was built from the ground up to answer the unarticulated needs of the market not addressed by previous available solutions. www.performancecanvas.com info@dspanel.com Budget Managment: Achieve Your Business Goals (Part One) 11